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Out With The Troops, In With The Afghan Investment?

An Afghan woman and her children walk near an open-cast mine in the Turkham Nangarhar region of Afghanistan bordering Pakistan. Manufacturing, mining, and Afghanistan's agricultural sectors would be the most likely areas of investment.

Foreign forces are preparing to leave the country, capital is fleeing, and it's the Afghan government's job to stop it.

To meet its objective, the Afghan Finance Ministry has drafted a package of incentives to assure companies and individual that their investments in Afghanistan will be safe after the expected withdrawal of Western troops in 2014.

Outlined in a bill facing a parliamentary vote in February, the incentives would reward those who invest in the country over the next two years with significant tax breaks and the right to purchase land for a symbolic price.

Najibullah Manalai, an adviser to Finance Minister Omar Zakhilwal, says the manufacturing, mining, and agricultural sectors would be the most likely areas of investment.

According to the Afghan National Bank, at least $4.6 billion has been taken out of Afghanistan in the past year, a development that has been attributed to fears over increased insecurity and corruption after the 2014 pullout.

Manalai downplays the impact the NATO withdrawal will have on the Afghan economy, but he acknowledges the incentive package is intended to "minimize such economic effects."

"We don't think there would be a major economic impact, but we are concerned about such speculation in the mass media," he says. "Such speculation could easily lead to economic downturn. So our aim is to counter such speculation and also to attract investors to Afghanistan over the next two years, which is a sensitive period."

Attractive Incentives

According to Finance Ministry spokesman Wahid Tawhidi, the goal is to entice entities willing to invest at least $1 million each into the country's ailing economy.

"Investors will be exempt from tax and customs duties for the next 10 years," Tawhidi says.

The spokesman says that companies would effectively be given land free of charge and electricity would be made available at a fraction of the current rates.

"In addition, if some companies are willing to invest but don't have enough money, we would help them to borrow the money from two state-owned banks -- the National Bank and the Pashtani Tujarati Bank," Tawhidi says. "Five hundred million dollars would be allocated for this purpose. We would enable them to borrow the money with low tax and low interest rates and to invest it in the Afghan economy."

While the incentives are looked upon as a potential boon to government coffers, not everyone shares the Finance Ministry's optimism that they can win over investors.

"Afghanistan has two major problems that scare away investors, and they are corruption and a lack of security," says Azarakhsh Hafizi of the Afghan Chamber of Commerce and Industries.

Afghanistan ranks among the three most-corrupt countries in the world in Transparency International's Corruption Perceptions Index.

"When investors have to bribe to operate and have to pay for additional security measures because of the constant attacks and kidnappings, it costs them more money to stay here," Hafizi says.

Half Of GDP

The Afghan government has had trouble providing security even for some of its most high-profile foreign investors.

Earlier this year, a group of Chinese miners left Afghanistan after militants attacked the Aynak copper mine in eastern Logar Province. The deal to lease the mine to the China Metallurgical Group for 30 years was the country's biggest private business venture when it was agreed in 2007.

The government has high hopes for similar investments in Afghanistan's lucrative energy and mineral sectors. The country boasts significant copper, iron, gold, and oil and gas reserves. Manalai notes that the goal is for revenue generated from investment in these areas to eventually "provide half of the country's gross domestic product."

Nasiruddin Shansab, the head of the U.S.-based Afghanistan-Central Asia Transnational Company LLC, says Afghanistan's natural resources and its geographical location offer great investment potential.

However, "in the climate of constant security threats and notoriously widespread culture of bribery," Afghanistan isn't going to see major Western companies rushing to invest there anytime soon, says the Afghan-born businessman.

"Tax breaks and other incentives for investors exist everywhere," Shansab says. "Afghanistan should know that it is competing with the rest of world to get investors."

Afghan officials insist they have been addressing the corruption issues. As part of the campaign against corruption, the country has introduced so-called merit-based hiring tests to employ managers to government agencies. Several district governors and deputy provincial governors have recently been appointed after passing such tests, scrutinized by independent monitors.

The Afghan Chamber of Commerce and Industries' Hafizi says the country still has a long way to go to eliminate corruption. "But I wouldn't say it's an impossible task," he says.

As for the lack of security, Hafizi believes many investors will still stay and watch what happens beyond 2014.

Comments

by: Saber from: Chicago

December 31, 2012 16:01

Nothing about the Afghan Public Protection Force which replaces private foreign security guards. Maybe because that the APPF has soldiers who could not even get into the Army or the Police. But Karzai is supposed to make money from foreign firms and organizations that hire the APPF. It sounds as bad as it sounds.